As coronavirus-related market volatility expands into municipal bonds, the Franklin Municipal Bond Department explains how they are navigating an increasingly challenging muni-market environment. They also share reasons why they believe a longstanding preference for high-quality municipal bonds supports their efforts to turn volatility into opportunity.

As we head into 2020, municipal bonds will likely remain attractive for many tax-sensitive investors, but their performance potential could prove to be relatively muted compared to 2019, according to Sheila Amoroso, director of our Municipal Bond Department.

Municipal bonds can continue to provide a number of potential benefits for tax-sensitive investors as we move into 2020, according to Shelia Amoroso, director of Franklin Templeton Fixed Income Group’s Municipal Bond Department. However, following the strong results in 2019, she and the team expect total return potential to be muted in 2020, with likely increased volatility.

Once upon a time, US municipal bonds were generally considered less risky than corporate bonds. Backed by the full faith and credit of state governments, investors had confidence they would receive their principal plus interest without fail. Times have changed.

Many investors flock to municipal bonds because of potential tax advantages. While this year’s taxes are probably already done and dusted, Franklin Templeton’s municipal bond team felt it was an appropriate time to revisit the opportunities and risks that recent US tax reform poses for the space.

Municipal bond yields moved higher in 2018 and seem likely to continue moving up in 2019 if market expectations for further interest-rate increases play out.

We believe it’s time to take a good hard look at the municipal bond market, because what was true 10 years ago, very well may not be true today.

With a new US tax law now upon us, many investors are questioning what the potential impacts may be on their portfolios—and on their potential investment selections going forward.